The Committee on Economic Development, Agriculture and Planning met Tuesday at the Earle B. Ottley Legislative Hall to discuss revamping, renaming and reorganizing the V.I. economic development program but, in the end, didn’t approve any changes.
The Virgin Islands Economic Development Authority, a semi-autonomous government agency, is responsible for attracting new businesses to the territory. The Government Development Bank, the Economic Development Commission, the Industrial Park Development Corporation, the Small Business Development Agency and the Enterprise Zone program operate under the VIEDA umbrella.
The Economic Development Commission is the agency charged with new business solicitation and offers generous tax benefits to attract new corporations to the Virgin Islands. Qualified EDC beneficiaries can enjoy up to a 90 percent reduction on personal and corporate income taxes and up to 100 percent exemption on excise, business property and gross receipt taxes.
Percival Clouden, VIEDA executive director, testified that 2,000 jobs have been created in the territory since 2007 with $500 million invested in the community. In 2013 there were 31 applicants for the EDC program and 20 were approved, but only 13 new businesses received certificates for benefits, he said.
Clouden said EDA incentive packages need to be updated to compete with long-term leases and tax abatements offered by other Caribbean countries and even New York state.
“If we are to remain competitive, we must be able to attract new hotels and keep the ones we have,” Clouden said. “The U.S. Virgin Islands remains a unique opportunity.”
In recent years, several beneficiaries have left the program and moved to Puerto Rico. EDA officials, senators and other testifiers all mentioned the long approval period for V.I. applicants versus 30 days, reportedly, to apply and open a business in Puerto Rico.
Sen. Shawn-Michael Malone introduced two bills as “significant legislation in this quarter to move the economy.” Gov. John deJongh Jr. has also encouraged changes to the law.
Malone pointed out that proposed U.S. legislation changing residency requirements from 120 to 83 days could have a positive impact on V.I. economic development.
Malone said revamping tax laws should be considered while making changes to the EDA laws. He promised to introduce a corporate tax law in the next quarter that would compete with Delaware’s business friendly tax code.
Changes to the authority, through Bill 30-0300, include changing the name of the Industrial Economic Program/Park to Economic Development Authority/Program and increasing the beneficiaries contract period.
Benefit terms would be extended to 20 years for St. Thomas and St. John beneficiaries and 30 years for St. Croix businesses in compliance with the program.
Sen. Nereida “Nellie” Rivera-O’Reilly objected and said the extended term would not keep businesses on St. Croix because of the amenities available on St. Thomas.
Another proposed change is to increase per diem allowances for commissioners, including government employees, from $50 to $150. Sens. Sammuel Sanes and Clifford Graham questioned the raise given the territory’s economy.
Clouden said that recommended changes proposed by the two bills would increase the efficiency and effectiveness of the authority.
Others who testified during the session included attorneys George Dudley and David Bornn and, on behalf of the St. Thomas St. John Chamber of Commerce, Adriane Dudley and Marjorie Roberts.
Dudley said the Chamber collaborated with the St. Croix Chamber of Commerce and the EDA for recommended changes to the law. The chambers support the legislation, she said, especially increasing benefit terms to 20 and 30 years. The chambers suggested including “joint venture” businesses as well as “wholly owned” entities as companies eligible for benefits. The capital investment requirements should be clarified, according to Dudley, and small businesses should be exempt from a $2,500 contribution to the Labor Department.
Bornn suggested including technology, advisory, service and financial services industries as companies eligible for tax benefits. He said the territory needs a “economic development philosophy to take us into the 21st century” and recommended listened to input from existing beneficiaries
George Dudley, private attorney, asked to testify and said he supports the proposed amendments and recommendations by the chamber. He said “flexibility is absolutely critical” to compete in the global marketplace.
Bill 30-0302 would change the name of the Government Economic Development Bank to the Economic Development Bank and merges the bank with the Small Business Development Agency.
The bank has a very high delinquency rate and the authority has been criticized recently for not collecting the loans or providing names of those in default. Clouden said that of $9.3 million in outstanding debt, $6.7 million is past due – a 72 percent delinquency rate.
It really should be $3.25 million, with a 47 percent delinquency, he said. Under questioning, Clouden acknowledged that most banks have about 2.5 percent delinquency.
“We get all the loans the commercial banks don’t want. If we don’t do them, there will be no movement in our economy,” Clouden said.
Rivera-O’Reilly jumped on Clouden’s excuses for the high delinquency rate and said she wondered why an Excel program wasn’t used to keep track of late payments. She said that a previous Legislature approved 5 percent unsecured loans so no one should be surprised at the high delinquency late.
“You thought you were speaking to people who didn’t understand lending.” Rivera-O’Reilly said. “I’m surprised you haven’t made more progress,” collecting past due accounts.
Sen. Clifford Graham, former director of the V.I. Housing Finance Authority, suggested the loan portfolio should have been sold and outside collections agencies employed.
Clouden said much of the delinquency goes back to the 1970s.
“Which you still have to collect,” Graham said.
Also attending the session were Committee Chairwoman Janette Millin Young, Sen. Myron Jackson and nonmember Sens. Craig Barshinger and Donald Cole. Sen. Diane Capehart was absent.
Although the bills were not voted on, Malone seemed impatient for input from the EDA on the suggestions given during the session. Clouden promised comments next week.